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China relaxes QFII rules to attract overseas investment

BEIJING — China has eased its grip on its control on investments made by qualified foreign institutional investors (QFIIs), according to a revised QFII regulation released by the nation’s securities regulator.

Compared with previous rules, the regulation published by the China Securities Regulatory Commission (CSRC) on July 27 lowers the QFII threshold and allows QFIIs to invest in the nation’s capital market through more than one securities dealer.

The regulation also allows QFIIs to invest in the interbank bond market and private placement bonds issued by small and medium-sized enterprises and hold up to a 30% stake in a listed company, up from the previous 20% stake cap.

The move aims to make it easier for QFIIs to invest in China’s capital market, part of the nation’s efforts to free up capital flows and accelerate the opening of domestic capital markets.

 The CSRC said it received 28 submissions after opening draft rules to solicit public opinion from June 20 to July 5, and the commission has made adjustments accordingly.

The CSRC said it will continue to speed up the approval of QFIIs, facilitate the operation of the QFII scheme with related authorities and strengthen supervision to attract more long-term overseas investments.

            The CSRC has quickened QFII approvals lately, granting 5.62 billion U.S. dollars in quotas to 51 QFIIs since December 2011.

The State Council, China’s Cabinet, in April increased total QFII quotas to 80 billion U.S. dollars from the previous 30 billion U.S. dollars.

The CSRC has granted QFII licenses to 172 foreign investors since the program started in 2002.

Foreign investment under the QFII program accounts for 1.1 % of the total market value of the country’s A-shares. (CM)

Source: China Money, Xinhua News, Citic NewEdge, 28.07.2012

Filed under: China, Services, , , ,

China QFII quota increase April 2012

International asset managers are preparing to apply for the expanded quotas for China’s qualified foreign institutional investor (QFII) scheme and its renminbi-denominated equivalent (RQFII), but the opening will benefit only some.

Last week the China Securities Regulatory Commission (CSRC) said it would increase the total quota for the QFII scheme to $80 billion from $30 billion. At the same time, it released a second batch of RQFII quotas of Rmb50 billion ($7.92 billion), which will be used for A-share exchange-traded funds (ETFs) listed in Hong Kong.

“Even though the additional $50 billion QFII quota and Rmb50 billion under RQFII are not significant amounts for the A-share market, they still have a positive impact,” says Shenzhen-based Da Cheng Fund Management.

Unlike the first batch of RQFII quotas (Rmb20 billion released last December), which were shared by 21 Hong Kong subsidiaries of Chinese fund managers and securities firms, the second batch will only be granted to a few experienced managers.

“We have been preparing for this product for many months and we are confident we will be one of the managers to get the RQFII ETF quota,” says Michelle Chua, regional head of business development at Harvest Global Investors, the international arm of Beijing-based Harvest Fund Management.

The existing A-share ETFs offered in Hong Kong are mostly synthetic (swaps-based) products, but RQFII will broaden the range of physically backed products.

The new ETFs will directly invest in A-shares, explains Chua, so that “there will be no counterparty risk, no p-note [participation note] cost and no foreign exchange difference, as the ETF currency denomination [in renminbi] is the same as [that of] the underlying investments”.

Harvest FMC and Huatai Pinebridge were the two managers that jointly launched the CSI 300 ETF, the first cross-market ETF tracking stocks listed on both the Shanghai and Shenzhen exchanges.

The CSRC will take the RQFII pilot scheme to the next level by expanding its scale, allowing more types of financial institutions to participate and more flexibility in terms of asset allocation.

For the QFII scheme, the previous ceiling was lifted from $10 billion to $30 billion in 2007 after the China-US Strategic Economic Dialogue took place. The increase of $50 billion this time is hailed by local media as “unprecedented”.

Since the QFII scheme commenced in 2003, the CSRC has granted licences to 158 foreign financial institutions from 23 countries and regions. They include 82 asset managers, 11 insurance firms, 23 commercial banks, 13 securities companies and 29 other institutions, such as sovereign wealth funds, pension funds and endowment funds.

The CSRC says 129 out of the 158 qualifiers have obtained a total of $24.5 billion in QFII quotas. As of March 23, 74.5% of the assets in the QFII accounts were invested in the domestic stock market, 13.7% in bonds and 9.6 % in bank deposits. The total holding of QFIIs counts for 1.09% of the market capitalisation of domestic A-shares.

Z-Ben Advisors views the latest changes as “unambiguous signals of China’s intent to attract more offshore investors and a sign that market investments will play a key role in the government’s plan to internationalise the Rmb”.

The Shanghai-based consultancy suggests that, in the short term, asset managers in the QFII application queue should expect accelerated approvals.

Regulators have already upped the pace of approvals since the end of last year. In March, the State Administration of Foreign Exchange granted a record $2.11 billion of quotas to 15 companies, compared with a total quota of $1.87 billion handed out during 2011.

“The QFII programme enhances our experience of monitoring cross-border securities investment and capital flows,” the CSRC says. “The QFIIs, mainly overseas long-term value investors, have diversified the domestic investor structure, upgraded the quality of listed companies and promoted the international recognition of domestic capital markets.”

Source: Asian Investor, 10.04.2012

Filed under: China, News, , , , , , , , , , , , ,

China Insight: QDII updates, Disparated Financial Standards and new Market Reforms – KapronAsia

Overview of the QDII Program in China

The QDII (Qualified Domestic Institutional Investor) program was first launched in 2004 initially for insurance companies to invest their foreign exchange funds in the Chinese companies traded in overseas markets, with PingAn insurance company being the first institutional investor to receive a QDII quota of US$8.89 billion. Since then, the program has expanded and now allows institutional investors, including commercial banks, security companies, fund companies, insurance companies and trust funds to raise funds in mainland China and invest in offshore capital markets under the control of China’s foreign exchange regulator.

China’s Disparate Financial Standards

China’s financial standardization lags behind the relatively rapid development of the financial industry globally and has yet to meet the demands of technology innovation and business expansion. This can slow the pace of technology advancement as competing standards add layers of complexity and make it more difficult to come up with straightforward technology solutions to clients’ problems. The PBOC has realized that financial standardization does and will continue to play a pivotal role in financial informationization and regards standardization work as an important strategic measure to promote China’s financial industry.

Further Reform of China’s Stock Markets in 2012
After being stuck in a bear market for the past few years, China’s stock market hasn’t kept up with the country that has become the world’s second largest economy following the U.S.. Facing this bear stock market, Guo Shuqing, the new chairman of the China Securities Regulatory Commission (CSRC), seems confident in China’s stock market, saying that the blue chips in China’s stock market are of real value, although overhaul and reform are necessary now to move the market forward. He has raised several new ideas that may contribute to this needed reform.

Source: KapronAsia, 10.04.2012

Filed under: China, Exchanges, Standards, , , , , , , , , ,

Trading China: Highlights from SunGard City Day Beijing

China, the world’s second largest and fastest growing economy, is in the midst of unprecedented change. That is particularly true for capital markets as regulations, business models and trading technologies evolve at a high pace.

Industry leaders and technology experts gathered at SunGard’s Beijing City Day in June to discuss some of the key trends in electronic trading, and we bring you below the best of these discussions – enjoy the read!

Opportunities and Challenges of QFII   Participating in China Stock Index Futures The opening of China’s stock markets to foreign investors offers unprecedented trading opportunities. But Qualified Foreign Institutional Investors (QFII) have to consider many aspects before investing in China’s Stock Index Futures: high systematic risk, defective policy, language and technology hurdles. Nanhua Futures’s Zhang Yiwei explores the challenges and opportunities.

Using complex event processing for algorithmic trading Complex Event Processing (CEP) has been labeled as the next revolution in trading technology and is already a prominent fixture in many investment banks, hedge funds, broker/dealers and exchanges. But how justified is its revolutionary status? And what exactly are the benefits that CEP provides? SunGard’s Benjamin Becar explains it all.

Market Data and China:  Meeting the Needs of the Growing Investor Community Providing investors with low latency market data that is cost-effective, requires minimal infrastructure and provides real-time financial information from liquidity points in the global marketplace are top priorities for market data managers in China. SunGard’s Peter Raftell shares lessons learnt from US and Europe.

Source: SunGard, 12.07.2011

Filed under: Asia, China, Events, Market Data, News, , , , , , , , , , ,

Citi and Orient Securities Sign China Securities JV Agreement

Citigroup and Orient Securities Company Ltd signed definitive agreements June 2, subject to regulatory approval, establishing a securities joint venture to operate in the Chinese domestic market. The new JV will be called 东方花旗证券有限公司 in Chinese and “Citi Orient Securities Co. Ltd” in English.

The joint venture will engage in investment banking business in the Chinese domestic market, including equity and debt underwriting and advisory services. Orient Securities Company Ltd will have a 67 per cent stake in the new entity with the remaining 33 per cent owned by Citigroup, consistent with existing Chinese regulations.

In addition to the investment banking JV, Orient Securities and Citi will also explore further cooperation in other areas such as research and training.

“The pairing of Citi’s global capabilities and Orient’s local strengths will create a market leading securities company with the ability to serve Chinese and international companies to help them raise capital from local equity and debt markets. This new partnership underscores our strategic commitment to China’s capital markets and complements our well-established banking franchise in China,” said Stephen Bird, CEO for Citi in Asia Pacific.

“We are delighted to be forming this important partnership with Orient Securities, a strong, highly reputable local firm which shares Citi’s management philosophy on building for success.

This announcement underlines our continued investment in China to support our clients,” said Andrew Au, CEO for Citi China.

Source: Asia E-Trading, 02.06.2011


Filed under: China, News, , , , , , ,

China may abolish QFII within five years, says Harvest

It’s likely to be scrapped to make way for a ‘free-market investing scheme’ en route to capital controls being fully lifted in the next decade, says Harvest Global Investment’s Mao Shuguang.

There have been a lot of renminbi-market developments in the last two years, particularly the past three months, noted Eric Chow, deputy head of business development at HSBC, this week.

But asset managers – speaking at the ‘RMB Rising’ conference run by AsianInvestor and FinanceAsia in Hong Kong this week – are still waiting for further clarification on issues such as RMB usage and conversion.

“Since July we’ve been seeking info about conversion limitations, what RMB funds can be used for,” said Chow. “At the moment, our choices are quite limited. So in the short term the situation is quite challenging.”

As for the kind of products fund managers are likely to launch, mainland firm Harvest Fund Management is waiting for the regulator to publish further details on how RMB usage and repatriation will work.

Mao Shuguang, head of product management at Harvest Global Investments (the Beijing based fund-management company’s Hong Kong branch), notes the huge interest in accessing the RMB market.

The firm’s focus will be on retail funds, he adds, and demand has been high for expected quotas to invest in A-shares via RMB-denominated ‘mini-QFII’. Mao cites an increase of Rmb30 billion in renminbi deposits in August, as reported by the Hong Kong Monetary Authority.

The government is getting more serious about the issue, he adds, citing for instance that the People’s Bank of China now has a department focused on the internationalisation of the renminbi.

“But it can’t be done in a day,” he says. “Capital controls need to be freed up so that money can flow into and out of China.”

One major development en route to greater relaxation of capital and investment controls is that the qualified foreign institutional investor regime is likely to be replaced by a “free-market investing scheme”, says Mao. In principal, it will allow the free flow of inbound investments, but there will be restrictions.

It will be probably three-to-five years before the QFII regime switches to the new set-up, suggests Mao, although investment restrictions will continue to ease before then.

Meanwhile, “at some point we can expect full free flow of capital”, he says, but not for 10 years or so – and some say it will take as long as 20 or 30 years.

Asked how he thought things would pan out in the shorter term, Mao turned his attention specifically to the mini-QFII regime, the rules of which have yet to be published. The industry had expected these to come this year, but now the consensus is for spring 2011.

Mao questioned the term ‘mini-QFII’, suggesting a better title would be ‘QOCII’ – the qualified overseas China institutional investor scheme – because under the rules, overseas institutional investors will be able to facilitate investments of offshore RMB deposits back into mainland capital markets.

Source: Asian Investor, 28.10.2010

Filed under: Banking, China, News, Services, Trading Technology, , , , , , , , ,

Asia E-Trading: Electronic Trading in China – Webinar September 7th

Asia E Trading presents the free  1 hour web-seminar : Electronic Trading in China

  • Overview of the Electronic Trading industry
  • Buy-side Algorithmic Trading
  • CSI300 Index future
  • Latest news on QFII and QDII
  • High Frequency Trading and Colocation
  • Update: Shanghai and Shenzhen Exchange

Speakers are:

Lionel Sancenot – Sungard- MD NE Asia & Greater China

Bill LiuQing Ma Investments -Portfolio Manager

Zennon Kapron – KapronAsia- Principal


Date: 07. September 2010

TIME: 5pm Hong Kong, 10am London, 5am New York

The seminar will be recorded and available on demand

Filed under: China, Exchanges, FIX Connectivity, Trading Technology, , , , , , , , , , , , , , , ,

China Central Government Urged to Regulate Private Equity and Venture Capital

» The central government should assume regulation of private equity and venture capital firms, which are now mainly subject to local government rules, said Wang Ou, researcher at the China Securities Regulatory Commission.  He also urged regulators to treat such firms as financial institutions, contrary to their current legal status in China.  Wang said the CSRC is stepping up research on building a Chinese-style regulatory framework to support development in the private equity and venture.

Full article in Chinese 中国 Source: Caijing, 20.10.2009

Currently Private Equity firms are in a legal grey are, which allows Chinese firms to trade in overseas markets, and foreign firms to trade A-shares and Futures on Chinas Exchanges, without restriction and costly processes (in a stark opposited to QDII’s and QFII’s ), amongst other investment and trading activities.In contrast to the other non-regulated funds and trading firms, PE firms can apply for a foreign curreny account by SAFE introduce and retract large sum’s.

Note by FiNETIK, 20.10.2009

Filed under: Asia, China, News, Risk Management, Services, , , , , , , , ,

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Filed under: China, Events, Services, , , , , , , , ,

SAFE new QFII Quota transfer restriction to limit foreign A-Share speculation

China’s foreign exchange reserve agency has issued a new rule to discourage speculations in A-share markets.

(Caijing) Restrictions on the transfer of investment quotas under the Qualified Foreign Institutional Investor program are likely to discourage short-term investment in China’s A-share market, fund managers and analysts said.

The State Administration of Foreign Exchange released new rules on Oct. 10 raising the upper limit on quotas for a single investor under the QFII program to US$1 billion from US$800 million, to “encourage medium- and long-term foreign investment in China securities.”

Investors have also been prohibited from transferring or selling their quotas to other institutions, according to the new rules.

At present, most overseas hedge funds invest in the A-share market with quotas leased from QFII program members, fund managers said.

An A-share investment manager with an overseas fund told Caijing that with the release of the new rules, some foreign investors are likely to shift their focus to A-share index products sold on the international market.

Other investors with longer-term commitments will consider applying for QFII license from Chinese government, “though it would be a lengthy and arduous process,” said the manager.

Shanghai-based consultancy Z-Ben Advisors Ltd. said in a recent report that the new SAFE rules are aimed at encouraging long-term investment while curbing speculation in the A-share market.

Z-Ben analyst Hu Miao said in the report that SAFE’s previous rules allowed the transfer or sale of QFII quotas to some extent, facilitating the flow of speculative funds in and out of China.

SAFE’s new rules carry the threat of reduced or cancelled quotas for QFII participants if they are involved in “illegal activities in using their foreign exchange by transfer or sale of investment quotas.”

FiNETIK recommends: SAFE sets new rules for QFII and QDII portfolio investors in China 13.10.2009

According to Z-Ben’s estimates, foreign brokerage investors under the QFII program have won quotas totaling US$ 9 billion to 10 billion to date, of which 1.5 to 3 billion may have been leased to unapproved investors.

At the end of August, SAFE had granted total quotas of US$15.3 billion to 76 QFIIs, which had remitted US$13.8 billion into China for investment.

Source: Caijing, 15.10.2009 by staff reporter Wu Ying

Filed under: Asia, China, Exchanges, News, Risk Management, Services, , , , , , , , , , ,

SAFE sets new rules for QFII and QDII portfolio investors in China

BEIJING, Oct 11 (Reuters) – China has formally relaxed rules on inbound portfolio investment, raising the maximum sum a single institution may invest to $1 billion from $800 million, the State Administration of Foreign Exchange (SAFE) said.

The new rules governing China’s Qualified Foreign Institutional Investor (QFII) programme also shorten the lock-up period for insurers and pension funds to three months from the one-year requirement that other investors must follow.

The changes, which came into effect on Sept. 29, are broadly in line with draft proposals released in early September.

According to a statement on SAFE’s website, the currency regulator had granted investment quotas totalling $15.72 billion to 78 investors by the end of September. UBS was the only investor to have used its full $800 million quota.

Separately, SAFE said actual capital inflows under the QFII programme had reached $14.50 billion at the end of August compared with a cumulative approved quota at the time of $15.32 billion.

Source: Reuters, 11.10.2009

SHANGHAI (Dow Jones)–China is raising the maximum limit a single qualified foreign institutional investor, or QFII, can invest in the domestic stock market to US$1 billion from US$800 million, the country’s foreign exchange regulator said over the weekend in rules that take effect immediately.

The relaxation of the rules under the program that allows designated foreign investors to trade yuan-denominated A-shares had been expected, but its timing comes as China’s stock markets are set to reopen for a full week of trading on Monday after being shut since Oct. 1 for a holiday break.

The State Administration of Foreign Exchange (SAFE) said that it may adjust the QFII quota ceiling as needed in the future and that reviews under the QFII program, first launched in 2003, will be more balanced going forward.

However, the revised rules also continue to underscore the strong oversight Beijing is keeping on cross-border capital flows, highlighting China’s very cautious approach toward opening up its domestic stock markets and liberalizing the capital account of the world’s third largest economy.

In statements posted on its Web site late Saturday, SAFE said that the lock-up period of funds for some institutional investors under the QFII program will be shortened to three months, though for other funds the one-year lock-up time remains enforce.

The shorter lock-up period that applies to pension funds, insurance funds, charity funds and government funds, among others, is aimed to encourage medium- and long-term investing, SAFE said.

The revised rules, which were first circulated as a draft proposal for public comment in early September, took effect Sept. 29, according to the SAFE statements. The maximum quota for a single QFII is being raised to US$1 billion, from US$800 million and the minimum quota application each time must be at least US$50 million, the revised rules state.

“SAFE can adjust the ceiling based on economic and financial trends, the supply and demand in the forex market, and the balance of payment situation,” the rules state.

China has given preference to review and approval of pension funds, insurance funds, mutual funds, charity funds and government funds under the QFII program, SAFE said.

China’s QFII program allows qualified foreign institutional investors to invest in securities traded on the country’s domestic stock markets, namely A-shares in Shanghai and Shenzhen, which this year have been one of the world’s outperforming stock markets.

As of the end of September, a total of 78 foreign institutions obtained the QFII quota totaling $15.72 billion, SAFE data showed.

The approval for QFII status comes from China’s securities regulator, but it is SAFE that has authority over granting quotas. This year SAFE has granted 12 QFIIs quotas with the most recent being Bank Negara Malaysia, the Malaysian central bank, and Deutsche Bank Group’s DWS Investments. Both were each approved US$200 million in QFII quotas in September, SAFE data showed.

Once approval for a quota is given, the QFII has to wait a year before applying for a new quota; and the QFII has to remit the approved funds within six months from getting approval, the rules state.

The revised rules on QFII programs also allow a single QFII to open different types of investment accounts and allows more convenience in foreign exchange, redemption and other area.  The administration said it may reduce a QFII’s investment quota if it fails to effectively use the quota within two years of approval. SAFE also strictly forbids QFII to transfer or sell investment quotas to others.

In a move to increase transparency in the QFII program and the Qualified Domestic Institutional Investors program, which allows domestic investors to invest in overseas securities, SAFE said it will regularly disclose the status of its approval process.  As of the end of September, SAFE also approved 56 QDIIs so far with a total of $55.95 billion investment quota, SAFE data showed.

Source: DownJones, 11.10.2009

Filed under: China, Exchanges, News, , , , , , ,

China equity funds gain 72% in first seven months

Performance numbers are likely to slide, however, as August turns out to be a challenging month for mainland equities.

China equity funds posted an average gain of 14.07% in July, bringing the returns in the first seven months of the year to 72.42%, according to data provider Lipper.

All this is before the sell-off in August, however. China’s closely watched CSI 300 Index, which tracks the 300 most representative A-share stocks listed on the Shanghai and Shenzhen Stock Exchanges, was up 4.3% yesterday, but is still 17% off its recent peak on August 3. The sharp fall in the Chinese stock market in previous days was mainly due to worries about the potential for imminent policy tightening in the mainland. China’s economic data for July was reasonably strong, but a sharp fall in bank lending stoked fears that liquidity could dry up in the second half.

Xav Feng, head of research for China and Taiwan at Lipper, notes that China’s annual GDP growth accelerated in the second quarter to 7.9% from 6.1% in the first quarter, making China the best performing major economy and reinforcing hopes that the world is pulling out of recession. He adds that China looks set to hit its full-year growth target of 8% after a surprisingly strong second quarter, notable for a surge in investment driven by powerful fiscal and monetary stimuli. Plus, China’s purchasing managers’ index (PMI) rose to 53.3 in July from 53.2 in June, exceeding the boom-bust threshold of 50 for a fifth straight month and reflecting strength in output. However, on the downside, China’s exports in July fell 23% from a year earlier and for a ninth straight month on a year-on-year basis. In the January-July period China’s exports fell 22% from a year earlier.

Xav believes that investors should be cautious when putting more money into China shares.

“China market’s rally has fully reflected optimistic expectations for China’s economic recovery, and investors should be wary of a market correction in the future,” he says.

Meanwhile, qualified domestic institutional investor (QDII) funds in China rose by an average of 10.02% in July, while rising 44.21% on-average for the first seven months of the year. The QDII programme allows institutional investors to move funds overseas as part of the liberalisation of China’s capital account.

BOCOM Schroders Global Selection Fund, China International Asia Pacific Advantage Fund, and ICBCCS Global China Opportunity Equity Fund were the best performing QDII funds in July, with returns of 12.06%, 10.91%, and 10.87%, respectively. For the first seven months of the year, Fortis Haitong China Overseas Best Selection Fund (+67.79%) was the best performing QDII fund.

Qualified foreign institutional investor (QFII) funds posted an average gain of 14.53% in July and 87.06% for the first seven months of the year.

Among the leaders in July were Schroder China Equity Fund, iShares FTSE/Xinhua A50 China Tracker, W.I.S.E.-CSI 300 China Tracker and Invesco China Opportunity Fund I, with returns of 20.76%, 17.19%, 16.17%, and 15.60%, respectively. Passively managed QFII funds, with a return of 16.01% on average, outperformed for the month, while actively managed funds posted 14.07% on average. The total net assets of all QFII funds rose 4.52% to $10.65 billion in July, but most QFII funds faced net redemptions rather than net buying, signalling that overseas investors were cautious and starting to take profits.

China launched the QFII programme in mid-2003 to allow approved foreign institutions to trade A-shares and bonds on the Shanghai and Shenzhen exchanges. The programme was part of the government’s efforts to open China’s capital market and ease controls on the capital account, under which the yuan isn’t fully convertible.

The China Securities Regulatory Commission granted a QFII license to Korea Investment Trust Management in July, bringing the total number of QFII approvals to 86 participants.

Average performance of fund groups in China in July:

  • Bond CNY +2.51%
  • Equity China +14.07%
  • Guaranteed +5.05%
  • Mixed Asset CNY +13.07%
  • Mixed Asset CNY Balanced +10.90%
  • Mixed Asset CNY Flexible +11.70%
  • Mixed Asset Other Conservative +7.36%
  • Money Market CNY +0.13%
  • Target Maturity +10.97%

Top performing QFII funds in July:

  • Schroder China Equity Fund +20.76%
  • iShares FTSE/Xinhua A50 China Tracker +17.19%
  • W.I.S.E. – CSI 300 China Tracker +16.17%
  • Invesco China Opportunity Fund I +15.60%
  • Morgan Stanley China A Share Fund +15.58%
  • W.I.S.E. – SSE 50 China Tracker +15.55%
  • Lyxor China A Fund +15.28%
  • Nikko Listed IDX Fund China A Share (Panda) CSI300 +15.12%
  • Invesco China Opportunity Fund II Class A +14.92%
  • Nikko AM China A Stock Fund +13.95%
  • Nikko China A Share Fund 2 +13.85%
  • Pru AM China Mainland Equity H Class +13.50%
  • APS China A Share +13.06%
  • ABN AMRO China A Share Fund +12.92%
  • PCA China Dragon A Share Equity A-1 +11.20%
  • Hang Seng China A-Share Focus A1 +11.17%, 21.08.2009 By Rita Raagas De Ramos

Filed under: Asia, China, Exchanges, News, Risk Management, Services, , , , , , , , , ,

HSBC in China JV talks with Industrial Securities

HONG KONG -(Dow Jones)- HSBC Holdings PLC (HBC) is in advanced talks to set up an investment banking joint venture in China with Industrial Securities Co., a person familiar with the situation said Wednesday.

The UK-listed HSBC, which already has a wide-reaching presence in China, is seeking to join the handful of foreign firms with a presence in the mainland’s lucrative underwriting and advisory markets.

The person familiar with the situation said it is difficult to say when HSBC and Industrial Securities will agree on a deal, and declined to elaborate.

Industrial Securities is a Fujian-based brokerage with a registered capital of CNY1.93 billion, according to its website. It provides a full-range of services in China, including broking, advisory, and new listing underwriting.

The Apple Daily reported Wednesday, citing unnamed sources, that the two sides may strike a deal by the end of this year to set up the venture, subject to agreeing on the terms and regulatory approval.

HSBC wants management rights over the entity, a model that UBS AG (UBS) and Goldman Sachs Group Inc. (GS) used when setting up their Sino-foreign brokerage joint ventures, according to the report in the Chinese-language newspaper. China has capped the maximum stake foreign banks can have in a Chinese brokerage venture at 33%, though a few of the tie-ups have accorded management control to the foreign firm.

If its venture is approved, HSBC would be joining a list of just a handful of foreign brokers that have set up shop in the mainland through joint ventures in recent years.

In December, the Chinese government ended an almost two-year moratorium on approving new joint ventures, as it shielded its domestic brokerages from foreign competition. Since then, China has approved ventures by Credit Suisse Group and Deutsche Bank AG (DB), though those tie-ups are only allowed to underwrite and sponsor deals domestic securities and debt deals, and not the trading of Chinese-listed shares.

But the list of foreign firms seeking entry is long, especially with China’s stock market being one of the world’s best performers this year. Many Shanghai-listings also registered gains of more than 90% on their first-day of trade.

Australia’s Macquarie Group Ltd. (MQG.AU) has signed a memorandum of understanding with Inner Mongolia-based Hengtai Securities Co. on setting up an investment banking joint venture, while South Korea’s Samsung Securities Co. (016360.SE) said earlier it was finalizing which domestic partner it is going to team up with.

Citigroup Inc. (C) and Morgan Stanley (MS) are also awaiting regulatory approval for their China joint ventures. Morgan Stanley has a stake in China International Capital Corp, but it is a passive financial investor.

“I’m not surprised to hear of more joint-venture acquisitions by HSBC in local financial institutions rather than in banks,” said Dominic Chan, an analyst at BNP Paribas.

“I think HSBC has been focusing on mainland China and Asia, and this deal is part of its ongoing program to divert effort and capital from Europe and America back to Asia,” he said.

A brokerage in China would add another crucial leg to the bank’s already dominant presence in the country. In China, HSBC has an 18.6% stake in Bank of Communications Co., the nation’s fifth-largest lender by assets; a 16.7% holding in Ping An Insurance (Group) Co. of China Ltd.; 8% ownership of Bank of Shanghai Co., and a 49% stake in HSBC Jintrust Co, a Shanghai-based fund company. HSBC’s 50-50 life insurance joint venture with Beijing-based financial services provider National Trust Ltd. was approved by regulators recently and is set to be up and running in the third quarter.

The lender has also hired investment bankers to advise it on listing on the Shanghai bourse next year, in potentially the country’s first listing by a foreign company. Although based in the U.K., HSBC made a quarter or around US$2.98 billion of its first-half pre-tax earnings from China.

Source: Dow-Jones, 19.08.2009

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Credit Suisse China JV with Founder Securities

The China Securities Regulatory Commission has given Credit Suisse the go-ahead to launch a joint venture with local firm Founder Securities. The Swiss bank takes a 33% share in the new entity, which will be able to sponsor and underwrite A shares, foreign investment shares and government and corporate bonds. The firm will not be able to offer secondary market services such as research and broking, however: under new regulations announced in 2007 Sino-foreign joint ventures must show a track record of five years’ unblemished service before being able to expand their activities.

Credit Suisse has already made some headway in China through its Shanghai representative office, ranking fifth on the Dealogic league table for equity bookrunners for financial year 2007 with 24 deals and a market share by value of 5.32%. That puts it in a large group of peers with similar market shares, as compared with top-three banks Morgan Stanley, Goldman Sachs and UBS, all of which have more established presences in China and each of which commands more than 10% of equity capital markets share. Those three top players all have established joint ventures of their own, and Credit Suisse and Founder Securities will be hoping to break into the 10% market-share club now that they are following suit.

Euromoney understands that the two firms have been in talks since last summer, with a memorandum of understanding signed in January. A spokesperson for the firm said that it had yet to decide on a name for the new entity. The joint venture will be run from Beijing and will be headed by Neil Ge, previously managing director at Credit Suisse’s Shanghai office. Lei Jie, chairman of Founder Securities, will take on the role of chairman.

The announcement of the Credit Suisse-Founder Securities joint venture follows the news on June 16 that CLSA had met the five-year requirement and its 33%-owned Sino-foreign joint venture, CESL, now has a securities broking licence (restricted to the Yangtze River Delta area) and a securities investment consultancy licence. CLSA, a brokerage, investment banking and private equity group headquartered in Hong Kong, says that the licence permits CESL to offer full-service research, sales and broking services for local and offshore clients wishing to trade A shares on the Shanghai and Shenzen stock exchanges.

Source: Euromoney, 11.08.2009

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China Keeps Global Investment Quota Curbs, Funds Say QDII, QFII

China will curb expansion of a program for local investors to buy stocks and bonds overseas until markets recover, according to the joint-venture funds of Credit Suisse Group AG and Prudential Financial Inc.

Qualified domestic institutional investor, or QDII, licenses will be difficult to obtain until regulators are convinced international markets have stabilized, said Thomas Kwan, the director of fixed-income at ICBC Credit Suisse Asset Management Co. in Beijing. MSCI’s global stock index is down 34 percent in the past two years, while U.S. Treasuries delivered gains of only 4 percent to yuan-based investors in the same period, according to Merrill Lynch & Co.

China had granted licenses to 50 companies to invest as much as $64.5 billion in international assets by the end of 2007, according to the latest government data. The program is designed to reduce currency reserves and ease pressure on the yuan to strengthen. The only licenses approved in the past year have been for “segregated accounts” aimed at wealthy individuals or institutions, limiting losses for retail investors, Kwan said.

“More important for them at the moment is to protect the investors, and this objective comes ahead of the currency,” said Kwan, whose company manages 75.2 billion yuan ($11 billion) in assets. “The regulator will let the money go out again when they think the market is safe.”

‘Orderly’ Process

The State Administration of Foreign Exchange has “adhered to the principle of controlling risks and opening up in an orderly manner when approving QDII quota,” the currency regulator said in a faxed statement to Bloomberg News today. Among companies granted the biggest QDII quotas were Ping An Insurance (Group) Co. and China Asset Management Co., according to the latest data from SAFE, released Dec. 31, 2007.

China first permitted financial institutions to invest overseas under the QDII program in April 2006. China Minsheng Banking Corp., the nation’s first privately owned bank, dissolved its overseas investment fund in March 2008 after it lost more than 50 percent during the global credit crisis.

“At the first stage, QDII funds didn’t achieve the goal the government wanted,” said James Yuan, chief investment officer at Everbright Pramerica Fund Management Co., which helps oversee 36 billion yuan in assets. The company has yet to receive approval after seeking a QDII quota in May, he said.

September Approvals?

The Shanghai-based company is a venture between Prudential Financial, the second-largest U.S. life insurer, and Everbright Securities Co. China restricts foreign ownership of fund management companies to 49 percent.

China’s foreign joint venture fund management companies expect to double the assets they oversee by 2012, an April survey by PricewaterhouseCoopers LLP showed. Respondents said slow government approvals for new products may impede growth.

There is speculation that regulators may start granting approvals for mutual fund QDIIs in September, according to ICBC Credit Suisse’s Kwan. China is aggressively encouraging its companies to do mergers and acquisitions overseas, he added.

Kwan is starting a “segregated account” QDII fund that will be able to hedge currency exposure and profit from bets that assets around the world will both rise and fall, offering the possibility for diversification for investors in Chinese equities. His company is part-owned by Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value.

Stronger Yuan

The QDII system and the qualified foreign institutional investor, or QFII, program, are part of China’s plans to move toward a fully convertible currency. The yuan was little changed at 6.8308 per dollar as of 5:24 p.m. in Shanghai. The government has kept the currency around this level for the past year after allowing it to rise 21 percent against the U.S. dollar in the previous three years. Kwan forecasts yuan gains of about 3 percent to 5 percent a year.

Expectations for the yuan to strengthen are discouraging the establishment of new QDII funds, said Yang Aibin, head of fixed-income at China Asset, which supervises 230 billion yuan of assets. He added that this was his personal opinion.

“Fund managers are less willing to invest overseas because of possible foreign-exchange losses,” he said.

Source: Bloomberg, 28.07.2009

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